Chapter 8 - Project Cost Management Flashcards
Cost Management
Creating the cost baseline and ensuring the project stays on budget
Includes the cost of ALL project resources: HR, materials, equipment, permits, and vendors
Variable Cost
Costs that change as the project proceeds
Gas prices or airline tickets
Fixed Cost
Costs that stay the same throughout the project
Location rentals, management wages, utilities
Direct Cost
Costs that are included in the baseline
This is a cost that the project will incur, such as materials, equipment rentals, or project team wages
Indirect Costs
Costs that are NOT included in the budget
Sponsor’s time spent helping with the project or ink for the printer
Sunk Cost
Amount of money that has already been serpent on the project
Value Engineering
Value analysis: finding a less costly way of doing work
Traditional vs Agile
Traditional: the entire budget is calculated during planning
Agile: funded incrementally
Plan Cost Management
Create the Cost Management Plan
Inputs: common inputs
Tools & techniques: common tools
Output: Cost Management Plan
Cost Management Plan
How to estimate the cost of each activity, create the project budget, and monitor and control the cost of the project
Can include how to determine the level of accuracy on the estimates, and how the EVM will be used to control the cost
Estimate Costs
Analyze each individual activity and assign a cost to each activity
Rough Order of Magnitude (ROM): most inaccurate, range -25% to +75%
Budget estimate: better, range -10% to +25%
Definitive estimate: very accurate and is done during the later parts of the planning process, range -5% to +10%
Estimate Costs Process
Inputs: project management plan (cost management plan, quality management plan, scope baseline), project documents (project schedule, risk register, lessons learned register, resource requirements)
Tools & techniques: expert judgement, analogous estimating, parametric estimating, bottom-up estimating, three-point estimating, data analysis
Outputs: cost estimates (cost of each individual activity), basis of estimates (how the estimates were developed and their ranges - assumptions and constraints), project documents updates
Cost Management Plan
Gives the steps needed to estimate costs
Quality Management Plan
Steps the project team will take to ensure the project meets its quality requirements
Scope Baseline
Includes the project scope, the WBS, and the WBS dictionary
Knowing the work that needs to be done and how it will be done will affect the cost of the project activities
Project Schedule
Includes the network diagram, Gantt chart, and milestone chart
Knowing how long it will take to complete each activity will affect the cost
Risk Register
Used to determine the amount of reserves needed for the activities
Resource Requirements
The resources needed to complete each activity will affect the duration of each activity
Includes: people, equipment, and materials
Analogous Estimating
A technique for estimating the duration or cost of an activity or project using historical data from a similar activity or project.
Top-down estimating
Quick to perform but could be very inaccurate
Parametric Estimating
An estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters
Something multiplied by something or something divided by something
Bottom-up Estimating
A method of estimating project duration or costs by aggregating the estimates of the lower-level components of the work breakdown structure (WBS)
Very accurate, can be very complex and time-consuming
Reserve Analysis
Add reserve time to cover work risks
Contingency reserves: known unknowns
Included in the cost baseline and are within the control of the project manager
Management reserves: unknown unknowns
Added to the project by the organization’s management and are not included in the project cost baseline
Cost of Quality
The amount of money you spend to ensure quality requirements are met on the project
Cost Baseline
The approved version of the work package cost estimates and contingency reserves. Used to measure the performance of the project.
Known as the budget at completion (BAC)
Cost Management Plan
A component of the project management plan that defines how the costs will be planned and controlled
States what inputs and tools to use to create the estimated cost of each activity
Quality Management Plan
A component of the project management plan that describes how an organization’s quality policies will be implemented
Steps the project team will take to ensure the project meets it’s quality requirements
Scope Baseline
Includes the project scope statement, WBS, WBS dictionary
Used as the basis for comparison to actual results
Part of the project management plan
Cost Aggregation
Rolling up the activity costs into work packages and then the work packages into deliverables
Funding Limit Reconciliation
When the organization limits the project funding
Might result in rescheduling of the project work
Determine Budget Process
Inputs: project management plan, project documents, business documents, agreements
Tools & techniques: cost aggregation, expert judgment, historical information review, funding limit reconciliation, financing
Outputs: cost baseline funding requirements
Control Costs
Part of monitoring and controlling
Try to keep the project on budget
Compare the planned work (project management plan) and the actual work (work performance data)
